Know Your Right: You may still owe more after you 'pay in full'

Sept. 17, 2011 at 4:17 a.m.

By Richard Alderman

I owe $1,500 to a creditor. I cannot afford to pay the full amount, so I sent a check for $1,000 clearly marked "accepted as payment in full." They cashed the check. Now they say I still owe $500. I think the matter was settled when they cashed my check. Who is right?

In my opinion, the credit card company is correct; you still owe $500. Paying someone with a check clearly marked "accepted as payment in full" to settle a debt may discharge the obligation, but only in limited situations. For a payment-in-full check to work, the check must be offered in "good faith," and the claim must be in dispute.

In other words, it must be a good faith attempt to resolve a dispute about how much money is owed. Simply offering less than an agreed amount is not a good faith attempt to resolve a dispute.

For example, if you and your mechanic have a dispute about how much you owe for repairs, a payment-in-full check to resolve the dispute would satisfy your obligation. If the mechanic cashed your check, he would not be legally entitled to any additional money.

On the other hand, if you owe a bank $1,500 and the amount is not in dispute, you may not merely offer $1,000 to settle the debt. Even if the check is marked "payment in full," the bank may cash the check and then seek to recover the additional $500.

I owe a student loan from more than 10 years ago. They now say that if I don't pay, they will garnish my wages. How long do they have to collect? I thought there was no wage garnishment in Texas.

Unfortunately for you, there are basically no time limits within which government-backed student loans must be collected. Even though the debt is 10 years old, it may still be collected. Additionally, although wage garnishment generally is prohibited in Texas, wage garnishment for student loans is based on a federal law that pre-empts Texas law.

In other words, if you don't pay, your wages will be garnished. Under the law, however, you must be given an opportunity to make arrangements to pay before wage garnishment is used. I suggest you take advantage of this opportunity.

I hired a band to play at a party. They were to play two sets. They requested to be paid in cash because of previous problems with checks. After the first set, the band left. I asked for half of my money back because they didn't keep the agreement, but they refused. I don't have a contract. Can I still go to small claims court?

First, you do have a contract. You seem to think the only enforceable "contract" is a formal agreement, written on a piece of paper. In fact, any agreement, oral or written, may be a contract. As far as the law is concerned, your oral agreement that you would pay the band and they would play two sets is a contract. If they breached that contract by leaving early, you are entitled to damages.

In my opinion, the return of half of your money sounds like a fair measure of damages. I suggest you send them a certified letter asking for half your money back. If they do not respond, consider small claims court.

Richard Alderman, a consumer advocate popularly known as "the People's Lawyer," is a professor at the University of Houston Law School in Houston. Write to him at UH Law Center, Houston, Texas 77204-6391. He also maintains a Web page at www.peopleslawyer.net.